How Management Can Cause a Commercial Real Estate Investment to Fail - dummies

How Management Can Cause a Commercial Real Estate Investment to Fail

By Peter Conti, Peter Harris

When you begin your quest for acquiring a commercial property, try to “lead” with a professional property management company — find reputable property management for the type of asset that you’re pursuing before you even make offers to purchase. If you can’t find experienced and trustworthy property management in that city, don’t buy the property. It’s that simple.

If you spot any of the following management warning signals, take action immediately:

  • Your management is failing to manage. You may notice that the management isn’t holding the onsite property manager accountable to the expected promises and actions, isn’t meeting with the managers consistently, and isn’t reading the property reports regularly. You, as the owner, can take action by starting at the top of the food chain. Get the property management company’s management in conference immediately. Be very specific about your concerns. Don’t depart until solutions have been agreed on and delegated.
  • Your management often seems to be clueless and is always ineffective at operating the property efficiently. With ineffective management, you’ll have higher-than-market vacancies, higher expenses, late property reports, poor communication, and arguments. In the end, you won’t have a chance to be profitable. Start interviewing other companies for hire and cut your ties with the current company as quickly as possible.
    When hiring professional property management, make sure that the candidate has extensive experience in managing the type of property that you’re acquiring.
  • Your property manager is ripping you off. It’s unfortunate but true: Your property manager can steal from you, lie to you, and hide things from you. The consequences of this disrespect can be devastating. How do you spot a thief? Have your finances audited at least once a year. You can also monitor the cash like a hawk by verifying bank deposits and receipts to checks. It’s also smart to visually verify completed work and physically verify rented space or units.
  • You’re being managed by your own property. If you’re managing a piece of property yourself, it’s easy to lose perspective of who you are. When your property begins to run you instead of you running it, you’ll start making business decisions based on current circumstances rather than from your set business plan and financial goals. To avoid having your property run you ragged, set appropriate boundaries. Don’t take work or your work attitude home. Have a phone dedicated for work and shut it off at quitting time. Have an after-hours service set up or have others on-call for after-hours service calls or for other non-emergencies.
  • Your property doesn’t have a business plan. A business plan guides you and your property in the right direction when it comes to making business decisions. It can help you determine when to study the competition, figure out your property’s strengths and weaknesses, and set performance benchmarks that keep other management members on track. If your property doesn’t have a business plan, from what basis are you making business decisions?